THE PROPERTY DEVELOPMENT REVIEW
During the pandemic there were developers who were ready to get moving, however not enough commenced and still not enough are commencing; there’s a public housing shortage and that’s something that will be exacerbated in the next few years. It’s a real challenge to ensure we have adequate housing supply and we’re doing everything we can to be adaptable as a financier. We’re working closely with the right developers and projects where we know the fundamentals of the market are strong and where we have confidence in the end product. We are definitely trying to help by providing flexible financing solutions for these projects so more developers can keep moving. Do you think rising constructions costs contributed to developers not starting and are you finding these costs are plateauing? We can’t avoid the fact that we, along with other financiers have concerns around the supply chain and inflationary pressures on total construction costs however there is a sense of confidence that it is now going to plateau. The good thing however is that everyone’s eyes are wide open and builders are going into projects understanding this incredibly volatile environment and drawing their prices accordingly with an adequate buffer. We also do a lot of due diligence to ensure they’re strong and are able to insulate themselves from any further supply chain shocks. But looking forward we can be more positive, as most of the failures of builders have now surfaced and there is more stability and acknowledgement of the environment we are in. In 2020 you anticipated the trajectory of non-bank lending vs bank lending in Australia to trend similarly to the US and Europe, that being a more even balance of market share. Has this continued to happen? Non-banks have continued to fill a void and play a critical role in providing credit for the real estate industry and the banks will always be part of our real estate debt market but they should only be a part of it, not hold the main share of it. That to me is a healthier credit market, less homogenous, less reliant on 4 lenders. Developers are getting more tailored solutions and better commercial outcomes by virtue of having non-bankers active in this market. So I think we’re in a healthy credit market. There’s strong competition, and in the non-bank sector importantly, there are very legitimate institutional players who are lending effectively with good risk oversight. I’m very appreciative that we are still maintaining very strong risk standards because it’s important to ensure the ongoing credibility of the non-bank sector. In September 2021, 50% of MaxCap was acquired by Apollo - was this always part of the plan and what benefits has this brought to MaxCap? Yes, it was always part of the long term plan for (business partner) Wayne and I. It’s important to understand your own limitations and we felt we were at the right point in our growth cycle a couple of years ago to commence that process and bring in a large scale institution to take us to the next level. We were incredibly fastidious to find the right partner and landed on Apollo for a number of reasons and we are now supremely confident that we’ve made the right decision. It was the turbo charge we needed; their reach, scale and the gravitas of the Apollo name, to bring in larger capital and sure up the future of the business. Also, the fact that Apollo saw the long term scalability and sustainability in Australia, without having participated in credit in this country before, speaks volumes of how far our local real estate market has come and of our resilience, and to some degree our immunity to a lot of the global shocks that have dislocated the US and European markets this century. In our last interview MaxCap were looking to grow the direct investment arm of the business. How has this progressed since partnering with Apollo? The Apollo relationship is first and foremost about the scale and volume on the debt side of the business. Our direct investment arm of the business however has been a hugely virtuous one that has grown since we last spoke, but it is a deliberate, separate business unit, a different skill set to when you’re a lender. However we’re not interested in being the developer and executing, we’re the capital partner who team with the right developers to get the job done. As at end of May, we’ve deployed half a billion dollars in direct investment with an end of project value over $4 billion. It’s a significant business in its own right and it just enhances our value proposition to the market, as we not only bring in capital but also our own expertise. In terms of our developer clients we are very selective with who we participate with, they are the best degree developers only and we will continue to back and support them and grow this part of the business.
A reserved view about investment in the office sector was discussed in your previous interview. Has your view on this changed? With regards to the office sector, there has been an impetus for an evolution. People are now going to come out with better office environments and I think long term its going to be better in terms of work-life balance. The irony is that rather than instigating an abandonment of office buying, its actually posed the energy on investing more heavily in offices whether it is fit-outs for companies or buildings for developers, to ensure we’re motivating and giving employees a reason to want to come in to an environment that’s conducive to productivity. We’ve recently committed to office space in Melbourne ourselves, and are investing heavily in an incredible space to ensure our people want to come in and genuinely enjoy being there. The travesty that has led to the dislocation where most people spend most of their working life at home, I don’t think that’s a healthy outcome in terms of their mental health. It’s important to have interpersonal relationships and places to collaborate with people and although previously I had concerns, where we are today mid 2022, I am incredibly sanguine about the future of the office sector and the office market in general. MaxCap has been aligned with ESG for some time however you set up an official ESG Advisory Board in 2021. How has it helped/hindered your business? ESG has gone from being a nice to have 10 years ago to a non-negotiable. It is innate in the way we operate now. Our institutional clients want to see businesses that aren’t purely focused on the bottom line so you can no longer just be about a cold calculus of profit and loss or risk and return. It is also about ‘Are you doing the right thing? Are you being socially conscious? Are you supporting real estate projects that have an environmental benefit and are you ensuring that all your developments and suppliers are aligned with ESG criteria?’ These are principles that we at MaxCap are passionate about in our business anyway so it’s been very much MaxCap led, not investor led. We want to do this. We want our decisions to generate more than just good returns. In saying this, it’s not about compromising returns either. It’s about being conscious of it and making sure what you’re doing is the right thing not only the profitable thing. All our investments are in ESG alignment and we are certainly managing to outperform the market whilst being still very conscious of ESG principles. What drives someone like yourself to success with both MaxCap and racing? Whether it’s MaxCap or my racing interests it’s about achieving great things and I’ve always been a believer of focusing on the means and the end will take care of itself. “Legacy” is a word often used by entrepreneurs but for me it is not about self-aggrandisement, it is about making a difference and doing something that’s great whether it’s through MaxCap and enhancing the ability of projects, seeing projects come to fruition or changing the landscape of our credit market by being at the forefront of the ship with banks and non-banks. They’re important legacies that don’t have anything to do with me personally, but that I’m a part of. With racing, drawing the industry into the mainstream and having others see the joy I have in owning racehorses and being involved in racing, which I do zealously, that’s the legacy that is important. Not me having my name up in lights or holding the Melbourne Cup. I’m also extremely involved in and interested in the breeding of horses - I love being around them and wish I could spend more time with them and my dream moving forward is to breed a Melbourne Cup winner. All these things are genuinely what drive me to make a difference to the industries that I’m passionate about. Finally, what is the best and most rewarding thing about your MaxCap journey so far? Best thing about my journey with MaxCap has nothing to do with the projects, it’s the people. I’m so privileged to work with incredible people and to have incredible investors. I’m in such close proximity with some of the largest investors and most dynamic entrepreneurs of this country. That is the best part of this business and this journey because you can have all the technical skills you like to be successful but the single most important thing is relationships and understanding people and being able to have that emotional intelligence. That is the number one criteria to be successful in business. Everything else is secondary.
July / August 2022 – 13
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